[PDF Notes] Why Underdevceloped Countries Should Adopt the Industrialised and Protective Policy?

The main objective of the under developed countries is to have acĀ­celerated development through industrialisation, and for industrialisation the adoption of protective policies is essential. There are many reasons why an underdeveloped country wants to industrialise and hence calls for the adoption of protection.

(i) The economies of the underdeveloped countries are heavily dependent upon production and export of primary products. The cyclical fluctuations and swing in the balance of payments of the primary producing countries tend to be more marked than in manufacturing countries.

(ii) As per capita world income rises, its declining proportion is diverted to food and other raw materials. The underdeveloped countries which depend heavily upon the export of food and raw materials face a long-term deterioration in their terms of trade.

By creating demand for industrial products through protection, these countries can diversify their economies and thus avoid the effects of deterioration in their terms of trade.

(iii) Foreign trade has not proved an engine of growth for the underdeveloped countries. Trade of these countries has grown more slowly than that of the developed countries.

The factors like growth of synthetics, changes in the consumer tastes, and restrictive policies against the imports from the underdeveloped countries have forced these countries to concentrate on import substitution rather than export promotion. Protection may be used as a means to develop export industries.

(iv) Marginal productivity of labour being higher in manufacturing industry than in agriculture, a transfer of labour from agricultural sector to industrial sector will raise the marginal productivity in agriculture and average productivity in the economy as a whole as a whole.

Therefore, the underdeveloped countries need to be industrialised and protective measures should be adopted to achieve this aim.

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